Transforming a Risky First Rental Into a Profitable Property

Ashley :
This is Real Estate rookie episode 436. Should you buy your multifamily as your first property, we’re going to find out. I’m Ashley Care. Welcome to the Real Estate Rookie podcast, where every week, three times a week where we bring you the inspiration, motivation, and stories you need to kickstart your investing journey. Today’s rookie investors are a husband and wife duo that purchased a two family home in a very expensive market, but they dove in headfirst, got their hands dirty and did the hard work for a bigger, brighter future. Today on the episode we’re going to discuss how they acquired the deal, what you should know about a 2 0 3 K loan, how to do a live and flip, and how to deal with tenants when you live under the same roof. So Noreen and Derek, welcome to the show. Thank

Noreen:
You. Thank you for having us. Hi, thank

Ashley :
You. So to kind of jump into it, Derek, I heard that before you met Noreen, you had already bought and sold your first property, but then you started renting again as a renter. What made that decision happen?

Noreen:
Yeah, good question. So I went in a single family home as a four two with my cousin, and it was during the time when Obama was giving out that $8,000, $10,000 tax credit. It’s for a first time home buyer. So we took advantage of that. It was a distressed property. We rented out two of the rooms to college students, so it was like 500 a room, and we were on the hook for 1181, and that doesn’t include taxes. So my uncle said, this is the cheapest you’re ever going to live. Well, surprise he was wrong, only by a little, but he was still wrong. So we did that. I think it had to stay for three years or four years. And the four year mark, I just decided, okay, let’s part ways while family relationship’s still good because that’s more important than a deal or that type of thing. And I started renting again and I moved in with my sister and we rented for a year. And as I was paying the rent, I’m like, this is a lot worse than owning and having the income. The opposite

Ashley :
In what was worse about it? Was it more just the mental aspect of I’m giving somebody else my money and I’m not getting equity? Or was it you’re submitting maintenance requests and things aren’t getting done? What was kind of the reasoning you decided you didn’t want to do that anymore?

Noreen:
Yeah, that’s a good question. I would say equity because every time you make your payment, you’re paying a thousand bucks, but you’re getting back 800 just to pull a number, 600 bucks. So when you’re paying rent, you’re not getting anything back that’s going all to the landlord. And now that we’re landlords, we see that side of it even more clearly. It’s kind of hidden when you’re renting that you’re paying like, oh, I’m getting something, a place to live. But you are missing out on that, on the equity

Ashley :
Building then. So had you met Noreen at this point when you decided you’re going to go and buy your first property or your next property, I should say Sue

Noreen:
You? I think so. Yeah. I invited you over. Yeah. Yeah. I had seen the house that they had and shortly after we met Derek wanted to sell out of it, and I was like, why? You are living for nothing here I am living in Astoria, which is a great neighborhood, but I’m paying rent in New York. Everyone I know would rather own something than rent something. So I was like, what are you doing? But it turned out that was in our favorite eventually because we were eventually able to get the loan that we got later. But for a while I was like, why would you sell out of this? But it made sense in the long run.

Ashley :
She’s like, this is why I am dating. You own a house.

Noreen:
Yeah, I know. I was like, why are you going backward? Yeah. But after we met, I think after we got married, I think we started talking again about investing and home ownership. We started our married life renting because we had to start somewhere. So we started renting and we very quickly said, let’s get out of this as fast as we can. Thankfully we had the finances to buy a house and we said, let’s buy a house. And then we started listening to, well, I should say Derek started listening to BiggerPockets before I did. Yeah. So we were renting an apartment in the city. It was like 1400 a month. One bedroom had two windows, which was nice. You could get across base. We had a corner, some of them you just don’t get that. And every day was 45 minutes on the subway into the city.
I was working in the city at the time, and we did that for a year, and the 45 minutes was a great time to listen to podcasts. So BiggerPockets, I listened to do Roller was another one that I listened to. There were a couple, I was kicking around just investing, what are people doing? And one day at lunch, I’m talking with Noreen on the phone and she’s like, what do you want to buy? And it was like pulling teeth for me. It’s hard for me to say what I really want. A lot of the times, for some reason, opposites attract because I’m really, really vocal about what I want. She’s like, what do you want? I said, what do you want? And I was like a multifamily. It just came out with that and it was the truth. And here we are.

Ashley :
So what were some of the things you did to prepare yourself for investing in multifamily? When you splurged that out and you decided, okay, we’re going for multifamily, what were some of the next step you did to actually be able to take action on a multifamily property?

Noreen:
Well, either way, you’re buying a house, so you need to take the action that you would if you’re going to buy a single family house or a condo or whatever you want to live in. So we got our ducks in a row financially and found a realtor and put aside our down payment in a nice account that we wouldn’t touch. And then the location. So one of the biggest things for us was we wanted to be able to go into New York City where Noreen’s work is. And so we said 10 miles, 10 minutes, 10 minute walk to a train station that has access to the city. And that really limited, that settled no to a lot of stuff, which makes it a lot easier to look when you’re not looking through thousands of listings, you’re only looking through hundreds or however many, a lot less.
It’s easier and then you can say yes more easily. And we also, we had looked around Queens in our neighborhood that we were living. We were living in Woodside. It’s a fine neighborhood. I had moved from a story to Woodside and we realized for our, we could get a studio co-op in Woodside, Queens or we could swing a multifamily house in New Jersey. So we were like, well, I said to myself, Noreen, you never thought you’d say this, but you’re going home to New Jersey from here. And my parents long ago moved out of the city and got a house in suburbia or whatever, and I was like, oh, bridge and tunnel. Here I go, but as long as I have a train, I said, as long as I have a train and a bus, I actually have a train and a bus. I said, then I could do it.
And we would hop in the car with your mom and she would drive us around to a couple properties and as we’re going, the value was kind of like, it’s going to be over 300,000. I was used to it, like 1 50, 200, but then just looking to, you’re going to get something that’s not really that great, not turnkey, you’re not moving in. Oh, this was not a turnkey situation at all. And these are 2016 numbers for anyone who’s listening and saying, oh, 300 grand in New York. Well that’s a deal. Now eight years ago, that’s a total steal right now. Tell me if you find one please. So the other thing we did is we looked at what are the taxes in the different towns that we’re looking? Because in New Jersey, our property tax numbers are quite high. I think they’re highest in the nation still 12 grand a year to 20 grand, 24 grand a year, especially in a multifamily, right?
Because it’s a bigger property, you get more. So we xed out all the towns for the highest taxes and we xed out all the towns that we wouldn’t feel comfortable in for safety reasons. And we xed out the towns that didn’t have a train in both directions at all times of day. And we ended up in three neighborhoods and we narrowed it down to where we wanted to go and we said, that’s it. And we’ll say no to everything else. It was like Lindhurst, Garfield, Lynnfield, a government subsidy for taxes here still is just trying to drum up industrial workers.

Ashley :
Yeah, what a great roadmap you guys just put together For somebody who’s looking to buy their first property but doesn’t know exactly what neighborhood they want to be in is to like, okay, you could say you want to be in Buffalo. Okay, there’s lots of neighborhoods just like in every single city, that’s not niche enough. You need to go in deeper and exactly. We did take a map and just X out as to like, okay, not here, not here, not here and putting that in. But also you guys did a really good job of defining your criteria of not only just the market, but you wanted a multifamily, you wanted it 10 minutes walking within a train station and how you said, instead of looking at thousands of deals, we were looking at a hundred. And when you limit the amount of deals you’re actually, or the amount of leads I should say you’re looking at coming in, you can spend a more quality time analyzing those deals because you’re not overwhelmed where there’s something that you guys discovered in your listing where maybe if you were inundated with a thousand leads, you would’ve missed it.
But what was that one thing that was listed incorrectly on the house that you ended up purchasing?

Noreen:
Oh yeah. So we were finding properties faster than our realtor was because we are our own client. He’s busy, he’s busy, he’s popular, he’s a nice guy. So we found our property listed as a single family on HUD’s HomeStore, and it’s actually a multifamily. So if you’re searching, don’t search your criteria too niche because you might be eliminating something by accident. That’s actually the thing for you. Often people will reverse bedrooms and bathrooms if you’re looking for a three, two, sometimes they’ll say it’s a two three or something like that. So just a little quick tip. Sometimes it’s just listed wrong

Ashley :
And that actually happens quite common. I’ve heard lots of stories as to something that’s listed as an office, but it super easily has maybe a closet on the other side of it. You just have to put the door to the other side or something like that, that there’s even not listed incorrectly, but opportunities within the home that you don’t see in the pictures unless you go and actually walk the property. So you found this on the HUD website. Can you explain what this is?

Noreen:
Okay, so the hud HomeStore Housing and Urban Development I think is what it stands for. I’m sure somebody on the internet will correct me if I’m wrong. So it’s a government website and it is very much a government website in that regard though. They did have a nice update recently and it is a listing, you can search listings on it. They have other programs that they have on their website, but you can search listings on it. And these are HUD owned government owned properties that are foreclosed upon. So they’re foreclosures of somebody who had a government loan and they didn’t pay it, and now it’s for sale. So a lot of these properties are distressed. A lot of them have been uninhabited for a year or two or five or 10, who knows? And they were unloved and not cared for because the people who didn’t have the money to pay their mortgage are also the same people who didn’t have the money to upkeep the property.
At least that’s what we saw in our property. Maybe not for all at HUD houses, but that’s what we saw for ours. The nice advantage if there’s an advantage on a HUD house is that they’re often open to owner occupants first. So on our property, that was a five day period. It can vary. I dunno what the rules are now. They changed them a lot, but for us it was five days. So it went up on the market on a Wednesday and the bids were due on a Monday and we saw it I think Thursday night we found it and we looked at it on Saturday and we had to get our bid in by Sunday night because on Monday it opened up to investors. And when we say investors, I mean like piranhas in our neighborhood because this, we’re in a multifamily universe. This is a multifamily neighborhood.
There are a lot of people around here who know how to fix a house and fix it quickly. If we see a house that’s like a little bit ignored around here, we’re like, oh, next week it’ll be two. And it really is. People are tearing down houses, building up students, contractors live here. So being owner occupants, we were able to bid before they all got here. We did a funny game game. Your dad’s like, we all sat around the dining room table and he’s like, everyone write down what your bid would be. And we folded it up and put ’em into a hat and then we pull them out just for the fun of it. Because if we didn’t win on Monday and no one ever knows what’s the magic number that HUD wants? If we didn’t win on the Monday, we might lose our chance. So we bid a little healthier than I think I would in retrospect. But the other thing is we were pushing up the end of our lease and we didn’t want to continue renting. And we said, look, the difference in 27 grand on our bid is like 30 bucks a month on our mortgage payment. And we were like, we can totally swing 30 extra dollars a month on a mortgage payment to get this house, get the house the object. The game was just get the house as soon as we could.

Ashley :
So whose number was it that you actually put the bid in? Who?

Noreen:
I forgot what it was. I don think my dad bid high. So he was out. We were like, we’re not paying over 300 for this house. We followed some guy online. It was okay. So the day the bid, we went home and when I tell you we read everything available on BiggerPockets on, I think this Invest four more has a great resource on HU Houses. We read our faces off about how to bid in this process. We knew nothing about it. So I said, look, reading’s free, let’s find out what we can. And we did, and I think it was my number that we settled on. 2 87 5 was where we settled. And then the 2 0 3 K,

Ashley :
Well, we’re going to take a short break first. Before we get into that, I really want to hear how you guys manage the renovation on this property once you close on it. But first let’s hear a word from our show sponsors. Okay, so welcome back. We’re here with Noreen and Derek talking about their multifamily purchase. So they just got it under contract, they got the winning bid and now they’re ready to get their 2 0 3 K loan. So Derek, do you want to explain what a 2 0 3 K loan is? Sure,

Noreen:
I can take a shot at it. Noreen knows more, but please

Ashley :
Then Noreen, you take this question.

Noreen:
It’s okay. I mean the basic concept is thank you, thank you. You can’t move into the house because the water heat isn’t available, so there’s no certificate of occupancy. You have to fix up the house enough so that you can move into it and it becomes livable. So that’s the premise of this. And then it allows you to take out your loan or your mortgage. It’s a construction loan on top of your mortgage is the short thing. So if you just bought a house and then said, oh, I need to take out a construction loan, you’d probably get some 15% rate or 20% or whatever construction loans go for now, which is probably astronomical. But your two or three K is the same rate as your mortgage. It just becomes part of your mortgage. So our rate at the time I think was 4%. I’m sorry, anyone listening? That’s not what rates are right now. So our mortgage and our construction loan altogether came to, I think 3 0 8 was the number. So we bid at 2 87 0.5 and then our 2 0 3 K cost to fix our house came to 3 0 8 and all of that was part of the mortgage.

Ashley :
What are some pros and cons of doing the 2 0 3 K loan through your experience of the process?

Noreen:
Wow, I just had a lot of emotions surged through my veins listening to that question.

Ashley :
Would you like to vent right now about the process?

Noreen:
I mean, I’m not going to mention any names about our contractor. So the pros, okay, so the pros are you can get a house that if you don’t have the cash to pay for an uninhabitable house, you can still get your house and you can mortgage it. So this is a house that ordinarily was uninsurable. This ensures that you can get the house and you can get insurance and all that good stuff. Big con is that there’s a lot of paperwork and it’s tear your hair out kind of paperwork and your contractor has to do a lot of it. Some contractors are very good, some contractors are not very good. We actually had a contractor who knew the paperwork, but then he knew his toolbox. So I don’t know which is better. We ended up basically fixing everything he touched in our house, but we got into our house in six weeks and for two or three K stuff, that’s actually pretty quick.
We had the laundry list of things we had to fix included both boilers, both hot water heaters, windows a roof, a portion of the roof. There was a staircase with a three foot drop to the side door that had no stair, I mean it was really truly an uninhabitable house and we could not turn on the water at all in the whole home buying process. So when they say like, oh, we need to test the water pressure, we’re like, can you do it? And they were like, Nope. So we’re like, all right, let’s just assume we have to fix all of the plumbing in the entire house. And that’s what we did eventually. We’ve pretty much done every inch of it.

Ashley :
And how did you guys go about estimating that rehab cost when you’re sitting at the table writing out your bids? Did you have an idea at that time what the rehab was going to cost and base your numbers off of

Noreen:
That? So the contractor did that. Okay. And I will say he was pretty accurate other than a leak or two that they didn’t foresee. He did do that. And they do make you do a 10% contingency, which is I think a really good idea no matter what kind of rental you’re doing is to add 10 or 20%, but 2 0 3 K makes you do 10 to your top number. So we ended up using that 10%. That’s what it’s for, right? For something unforeseen. So the con is definitely the paperwork, but the pro is that you get the house.

Ashley :
Six weeks is pretty good to do a full house rehab

Noreen:
Now, hold on now, hold on. Six weeks got us in the door like eating Chinese food on the floor next to the one working heater we did. This was not a Joanna Gaines renovation. Okay, let me curb expectations here. We were not screaming, clutching our pearls saying, oh my gosh, what a beautiful house. We were saying, oh wow, it’s nice and warm for the first time ever in this house. Well, plus even with the negatives of a contractor that wasn’t great with tools, he did hire subs that were great and we made, somehow we got his phone number plumber and he was star in fixing things that were beyond well, Noreen’s a carpenter, fifth generation carpenter. So he skills that maybe were less, he didn’t want to do them or it was electric. Getting those contractors that are good and you look at them and you say, you did good work. I’m happy to pay you and I want you to keep working on this or work on the next property. Yeah, we definitely got his, literally it was like whatever dating tactics people use to get someone’s number. We were all about that with our plumber. If he wanted a cup of coffee, I was like, Hey, do you want another cup of coffee? Yeah, we’re on it.

Ashley :
So you mentioned that Noreen’s dad was a carpenter and has contracting experience. What about you two? Did you have any knowledge of construction and going into a rehab and what to expect the

Noreen:
Process? I would say generally, no. I mean Noreen grew up with it. It would be a weekend and eight o’clock in the morning and the hammers are going. So she had more experience, let’s just say that way than I did. Obviously I’ve got the strength or whatever and quick to learn. So happy to help and learn as you go. We ended up doing drywall ourselves and doing some of the plaster and painting actually quite a bit of it later on our floor. You just put everything. Yeah. So you start to see it and you get exposed to it and you’re like, wow, this isn’t really that hard. This isn’t rocket science.

Ashley :
Did any point in time that put any strain on your relationship of like, okay, you’re going and moving into a renovation together, you’re having troubles with your contractor. At any point did this cause any strain and what’s your tips for any couple that’s going to be living in a renovation? Well,

Noreen:
You have a lot of stuff on making a makeshift kitchen. When you’re redoing your kitchen, you aren’t cooking in it. I think it brought us together more than it strained it. You can take an adventure and I truly think this is an adventure. This house, you can take it and say, oh my gosh, it’s going to be so stressful. I just wanted my nice house. Or you can say, look, we are newly married. Right? At the time we didn’t have kids and we said, this is going to be interesting. We’re going to have fun with this. We’re going to take it like an adventure. So when I tell you for the first week we lived here, I washed dishes in my bathtub and bathroom sink. I sure did because we had six sinks and only one of them worked or whatever. And you just say like, alright, this is temporary and I’m with my favorite person that I would ever do anything like this with. The only thing crazier I think we’ve done is have children.
And I wouldn’t have it any other way in terms of tips for other couples, I would say hold hands and do it together. Even if you don’t know what the heck you’re doing, find people who do say yes when they offer to help you. Go help other people and you’ll figure out how to do this and you’ll learn about how houses and on the days that are long and you’re literally covered in plaster. And I think there was one day Derek looked at me and he was covered. He was sanding, drywall, and he looked like a zombie. He looked like a zombie. And he came in and on the radio our wedding dance song managed to pop up. And I just looked at him and started crying. I was like, this is, here we go. It’s in the weirdest, craziest way. It’s kind of a dream come true right? Here we are. We’re doing life together. That’s what we said we would do. So any couple, find your common values, start there, draw on that and do life together even when it’s crazy

Ashley :
Messy and living in a rehab.

Noreen:
That’s it. That’s it. So

Ashley :
Let’s kind of wrap up that property as to how long did it actually take to finish the rehab? Did you refinance the property and what’s the final numbers on the deal? So

Noreen:
We renovated the second floor first. We’ve closed on the house in October of 2016. We had the second floor kitchen bath and the rest of the apartment done. We gutted the kitchen and bath and one bedroom and then fixed up the rest of it. And we had it rented out by June of 2017. At that point, we refinanced in September of that year to get out of our PMI. So we only put three and a half percent down. It was an FHA loan that was 10 grand, but we were paying over 200 bucks a month on PMI because of the low down payment. And the only way to get out of it was to refinance some situations. You can pay your way out of PMI In this situation, on that particular loan, we could not. So the only way out was to refinance and we said, heck yes, that’s what we’re going to do. So we did. And then in 2020 we refinanced again just because rates were so low and we took advantage of that. We were so early in the loan that Derek did all that math and it made good sense. Yeah.

Ashley :
Yours. So you got 4% on your first loan. What was the interest rate on your second loan to make us all scorer?

Noreen:
I think it was 3.65 on the second loan, and now we’re down to under three. We’re at 2.95 right now, so I’m so sorry. Anyone who’s shopping right now, but it was 2020, we refinanced in our shed on the pouring rate. It was a very 2020 thing to do.

Ashley :
And then just recap for us real quick, what was the purchase price, the total cost of the rehab, and then what is the property worth now?

Noreen:
So we purchased at 2 87, 500. Add on to that, the 2 0 3 K, that first loan was at 3 0 8. The purchase price total was technically 3 0 8. We spent probably between the second floor and we eventually did our first floor and some other things. The exterior, oh gosh, our mason made a lot of money. We eventually spent probably about 115 grand on the house from top to bottom and that does not include all the sweat hours and all of the friends that we had a lot of help, we had friends come and help us paint. My dad was here all the time. Yeah, Noreen’s like for my birthday, we’re doing a demo smashing party. I’m having a birthday smash, emphasis on smash, who wants to come? And people like my brother and sister-in-Law, shout out. They came and my dad was here and his buddy Frankie was here all the time helping us tape. And Derek’s cousins came down. We have friends help us paint so. So all of that does not included in that one 15, right. Our plumbers gone to Disney World quite a bit.

Ashley :
And what do you think the value of the property is now today?

Noreen:
So we can officially say we reappraised in 2020 at five 70. I would say it’s healthily above 600 by this point. A two bedroom house very close to here, just went for seven 20. And if you paid that for that house, please tell me who you are. That’s a lot. It’s a lot. It’s a lot. The market’s gone crazy here. Yeah, it doesn’t make any sense, but we’re not mad about it.

Ashley :
And what about your living costs now? So you’re still house hacking in the property?

Noreen:
Yes, we are.

Ashley :
Okay. So what is the other tenant paying in rent and what do you actually pay a month to live in the property?

Noreen:
There’s a little bit of a story there. So we started renting at 1800, which was 17, 1700, 1700 in 2017, which is awesome. And one of the mistakes we made was we kept renting at that rate. We were like, wow, this is great. Look how we’re living. And then when we decided let’s start upping it, it felt weird because it was the first tenant that was still living there. It was like, why are you changing this now? So there’s a little bit of difficulty with that. I was reading stuff and seeing things online and it’s like this is a business, it’s not a charity, so you kind of need to do that and it’s okay to get turnover because of it. So there was a little bit of a mind shift. We’re like, okay, so now we consistently do something, bump that rent up a little bit.
It seems like a lot of folks who are in this, they’re just like, should keep the tenants less turnover, less work and a couple less dollars. But now it’s up to 2100 a month. We originally charged ourselves rent as just a way of keeping our finances organized. We’d move money over to our rental account. We originally charged ourselves around a thousand or 1200 just to build up a fund, like a separate account for the house capital for capital expenses and maintenance. And we’ve had to use it. So we keep that money aside. But now we’ve been nice to ourselves now and we’re kind of enjoying the fruits of those labors. And now we charge ourselves 3 43, but really we only have to come up with 43 bucks. Yeah, it’s amazing. It’s kind of nice.

Ashley :
Well, we’re going to take another short break here and when we come back I want to talk about managing your tenant while living under the same roof. Okay. Welcome back everyone. Thank you so much for taking the time to check out our show sponsors. So Noreen and Derek, you’ve rented out your property now. What has the experience been like, house hacking with your tenants living now you guys in the first floor or the second floor? We’re

Noreen:
On the first

Ashley :
Floor. Okay, so your tenants living above you?

Noreen:
Yes, with our tenants living right upstairs. I will say for the most part it’s been a positive experience. Everyone has their horror stories and we have them too about tenants and just house hacking goes. But those days are very, very few compared to all the good ones. I’d say there’s maybe five days I can really say like, ah, I wanted to put my hair out. And all the other several hundred thousand are pretty good in our experience, in our experience. Now I will say tenant choice is everything. Tenant choice will likely make or break your experience. House hacking, if you’re thinking about house hacking to anyone listening, be prepared to have to wait for a good tenant because there’s no undue button. It doesn’t work like that with tenants, especially not in New Jersey where it’s a very tenant friendly state. Depending on your area, you might have a little more leeway than people on the east coast do.

Ashley :
So what are some of the things you guys actually put into your lease agreement to set that expectation of these are the way things go around here, but in a nice way?

Noreen:
So actually Bigger Park was a really good resource. There’s a really a nice post somewhere about making a battle ready lease or something. And we definitely drew on that. No waterbeds, I wouldn’t have thought of that, but who needs a waterbed in the second floor unit above your head? Just stuff like that. There’s things that I wouldn’t think of but somebody thinks is normal and that person might be a renter. We also have stuff about when it’s okay to contact us. And that was hard learned. Not hard earned, but hard learned because we had somebody banging on our door at two in the morning for something that really was not life-threatening.

Ashley :
So what is your actual rule for that? I’d love to hear. I

Noreen:
Think it’s 9:00 PM to 8:00 AM Unless your life is in danger, please just wait until the morning to call. It needs to be a real emergency. It needs to be a real life threaten emergency, not something that technically could wait until regular normal hours, but if you’re on fire, please let me know. I’ll help you out

Ashley :
Or call 9 1 1

Noreen:
Or yeah, do that. Right. The landlord is not like, I’m not your mom. You got to take care of yourself at some point.

Ashley :
And then what about having any kind of documentation instead of just your tenant constantly coming over and knocking on your door and saying, Hey, can you take care of this? Or Hey, here’s my rent. Do you have any kind of set standards as to this is the process you have to follow to submit a maintenance request or to pay your rent? Yeah,

Noreen:
One thing we learned with our first tenant, we had them come knocking on our door and give us the check and we found that that often came with a story or we’re a couple hundred short and the paycheck next paycheck is Wednesday. Is that okay? And when we start doing that, we realize that you’re legally start getting into some trouble because you allowed it before. Why aren’t you allowing it now? And how come you’re not extending it further or whatever the issues are. The landlord’s legal value is a book that we were referencing. Great book. So prompted us to switch over to Cozy, which is now apartments.com, to get payments. All the payments are online, we don’t have to be home to get them. We could be on vacation in Florida or elsewhere and we can see is this payment coming in or is it not?
And then you want to speak to it. And also I think taking online payments is a really nice buffer between you and the tenant for some reason. It just makes it less awkward when you’re dealing with money. Money’s emotional for a lot of people. Overdrafts it a little bit late, overdrafts it’s late. You can add it more easily. You can automatically set a late fee if you need to and say, well, I’m sorry, tomorrow it’s going to charge the late fee. Right? It’s the machine that’s going to charge it. I’m not. So while it is, we are the ones that set it up, but it helps us follow the lease and not get emotional about it. Especially when they’re people that you know, you see them when you check your mail and their kids’ names and

Ashley :
And I’m telling you face to face, this is a nice situation. It’s a way harder to not have some empathy.

Noreen:
And the other thing I do is I’m kind of the main contact because I don’t work full time. So I am the one that does the interfacing with the tenants and it’s either text or email. So it’s in writing, I can see when I can see what it said, I can reference it back. I can rough draft what I need to say and then edit it if I need to. I can run it by Derek before I send it. God forbid it ever comes to something legal or serious, there’s a whole paper trail. And that has been I think really good. And then somebody can’t say, oh, I told you five times about this. Well, if you really only told me once about this and I’m fixing it literally as we speak, then I’m fixing it. So back off,

Ashley :
I love the documentation of getting things in a text or an email. And if we do have tenants call, our VA will add an activity into their tenant portal page saying, so-and-so called at this time, this is what they said, or this is what the conversation was, makes a note if there needs to be follow up, whatever. But I also do the same thing for contractors too, is everything written. I had a roofer that asked, Hey, can you just call me because there was an issue with the building permit. And I said, no, please continue an email with everything and I would not get on the phone with them. I said, no, I prefer to have everything in writing, please. Let’s just continue the email communication. And I understand that it is easier sometimes to just get on the phone or whatever, but I do prefer having everything in documentation so that you can go back and reference it. Especially if it is something that is already an issue. You want to have everything in writing in case it goes to litigation or whatever. But there’s been countless times where I’ve been able to scroll back and screenshot and be like, actually, here it is. Here’s what you said.

Noreen:
I hadn’t thought of that for contractors. That’s a really good idea. So

Ashley :
Along with Cozy that you’re using, which is now apartments.com for your property management, are there any other tools or software that you’re using to manage your property right now?

Noreen:
Excel?

Ashley :
Yeah,

Noreen:
We’re basic. Look, we have one property, right? We’re not scaling. I know you have 10 or something properties, right? We don’t have that many. Right? So for now, for us, Excel makes sense to us and that’s how we manage our property budget and all that kind of stuff. But it’s pretty basic. And

Ashley :
Is that how you’re doing your bookkeeping too, is just tracking it in Excel with the budget? Yeah,

Noreen:
From my line of work, I’ve always had to track my expenses. I’m in the arts, I’m a model, so I’ve always had to keep my receipts and track when did I spend this and how much was it and what was it called, where does it classify? So I’ve just transferred that into real estate.

Ashley :
So with living next door to your tenant, do you have any crazy tenant stories that you’d like to share with us? And sometimes on this episode we do a horror story and not to scare people out of real estate and busing, but to entertain, but also so that if this situation happens to them that they know exactly how to handle it or at least what to expect. So it’s not as scary of this scenario if it does happen.

Noreen:
Yeah, we’re laying in bed one night at nine o’clock. Actually there are a few stories, hold on. It’s April of 2020. I am sick. I am sick. I’m very, very, very sick. I was super, super, super sick at the very beginning of Covid and I probably had covid, but I was so sick that I couldn’t do anything about it. Knock comes on the door and Noian wakes up first and she’s just recovering whatever. And I’m like, I’ve been reading stuff like Lou Brown Trust. You don’t have to, if someone knocks once we answer the door, then you’re answering the door, but you don’t have to answer the door. So I’m like, let’s not answer. It’s two o’clock in the morning. We don’t have to answer the, well. Also, there’s only one set of people that have access to our apartment door. Our house has a front door and then there are apartment doors behind it.
There’s only one person that this could be, you’ll never guess, but this was a really solid knock. I was like, I don’t think that’s our tenant’s knock. That’s a professional knock. This is a professional knock. And I thought to myself, maybe I should answer it. And then I thought, oh my gosh, Noreen, don’t do that. That’s so mean. You are totally sick right now and there’s a pandemic raging outside of your door that would be terrible if you’d answer this door. So I looked at my phone and sure enough it was our tenant and I said, I’m very sorry, whatever it is, I’m not answering the door. I don’t want to get you sick. And they said, it’s the police. The heat is out. You need to do something about it. And I thought to myself, well shoot, if my heat is out, I’d call a plumber, not the police.

Ashley :
So they lost heat. Did they have any contact with you at all that maybe you were sleeping and missed the text or whatever? Did they even try to communicate with you first?

Noreen:
I think they might’ve texted once or called once, but I didn’t hear it. I keep my phone off at night,

Ashley :
But they didn’t come down and knock at all apparently. And they called the police. Wow. I can’t believe that the police would actually respond.

Noreen:
That’s what I said. They have better things to do and bigger fish to fry at two o’clock in the morning during a pandemic.

Ashley :
I just can’t believe that. God, I hope none of my tenants are listening. I mean, our plumbers are great responders. They get there really fast.

Noreen:
That sounds something else. We put in our lease. If you have a maintenance request of any kind, please give us 24 hours before you start taking further action on and do it yourself. Just give us a second and let, maybe we need to go get a part.

Ashley :
Well, exactly too. And if they were the homeowner, they’re not going to be able to get anyone faster than you are most likely, unless you really are dragging your feet. But yeah, I think that’s one of the difficult things about being landlord is you do have to set that expectation of what is a reasonable time for this to be fixed. And I have learned that having a lot of communication with your tenant, if something is not being fixed, like communicating why, you know what? I’m so sorry. There was actually an emergency at another property. I’m going to do this for you. In the meantime, whether it’s take money off their rent or maybe their fridge broke, I’m going to drop off, have somebody drop off a cooler with ice or whatever. Having that communication and offering, a lot of times just taking some money off their rent is just, or giving them a little rent credit goes such a long wait and it’s worth it for them to not get super disgruntled too.

Noreen:
And it’s just how would you want to be treated? We actually had a fridge go upstairs and for our renter, we let her put her freezer stuff in our freezer downstairs, and then we said, here’s a $75 grocery store gift card to the local grocery store. In the grand scheme of things, that’s not that much money to keep someone happy, like you said. Yeah. And we like the concept, or at least I think we like the concept of have touches or interactions with them that aren’t only negative. So when you see them say hi, ask how the kids are doing when they first move in, we give ’em a gift basket of just some treats and things, and our tenants have given us gifts so that way it’s not like, oh, the water went or the lights aren’t out. And it’s always a negative, negative, negative. It’s like that’s not a relationship. Even though it’s a business, not a relationship, it’s still when you’re living with them, they’re still your neighbors,

Ashley :
But they’re still a client, they’re still your customer. That’s

Noreen:
It. That’s it. They pay their hard earned money to us every month. It’s like Derek said, putting something into that emotional piggy bank so that later you can draw out of it is always a good, it helps. Did

Ashley :
You guys ever consider not disclosing that you’re the owners of the property and just saying, pretending maybe you’re another tenant there, or maybe you’re just the manager of the property? Did you ever consider doing that?

Noreen:
I came across it. You read a lot of stuff online and people are like, how do you do this? Even with the lu round, like I was mentioning in trust, and it’s like you can kind of hide in the back. The general feeling, especially since we live in the house, is you can’t really hide. You feel like integrity. What are you hiding from Being a landlord is responsibility. That’s the word I would choose for landlording. So you kind of trying to shirk that responsibility. It’s like, well, maybe take a look at why is that interesting to you? What are you running from, what are you trying to hide from why you want to, is it that you don’t want somebody bothering you? Well, where’s the speed bump in that? Right? So let’s find a way through that. We don’t want people bothering us after nine o’clock. Our kids are sleeping now. Right? I personally like my sleep too. So find a way around it. Find a way through it. So

Ashley :
You set that expectation. Yeah. In your lease agreement.

Noreen:
Yeah. I don’t think I would do that. For me, honesty is the best policy and it’s, it’s easier in the long run to be honest about it.

Ashley :
Yeah, I was just curious about that because I think that a lot of people choose different ways how to handle that and what works best for them. But yeah, I think that’s a great point as to you can find ways to say that you are the owner of the property and still set those policies in place so you aren’t bothered. And if you are a decent human being and a good landlord, then there should be no reason that you don’t want them to know who you are. Well, Noreena, Derek, thank you so much for coming on to the Real Estate Rookie podcast. We really appreciated hearing your stories and your success with your multifamily property. What is next for you guys?

Noreen:
What is next? We don’t know. We don’t know. Well, I will say before we go, I do want to say we’ve been documenting our journey at our blog R two family, so R two family.com. If anybody wants to see the pictures of our renovations or what we have to say further about being landlords and how we live for cheap, that’s 2 cents right now. We are kicking around different ideas of possibly moving and we’re kind of waiting on God a little bit to just see where he’s going to lead us. We did that with this house and it paid huge dividends, so we’re not in a rush, but we are keeping our eyes open for what the next deal is, whether we sell this place or keep it and get, we got a couple of kids, we like to have a little bit more space. The city’s a little tight, so we’ll see what happens.

Ashley :
Keep it in, rent out your unit with your nice low interest rates.

Noreen:
Yeah, yeah, yeah. The idea of another mortgage right now is, but the nice thing about this situation now eight years later is that we have options and options. I didn’t think I would ever mean ever come across in terms of the amount of equity that we have in this house. I don’t think I ever considered that the rent would go up. Over time. I thought, okay, that will be our mortgage payment and our taxes will go up and we’ll just keep pace. And it’s not like that. Unfortunately, our taxes did go up, but So did the rent,

Ashley :
But your rent increased more rapidly than the property taxes said. Yeah,

Noreen:
Correct. And we did. In retrospect, looking back, we can say, wow, we really bought at the right time before the market got really hot. It was hot, but it got really, really hot in 2020, especially around here. And it continues to stay because New York is itself and people are moving out of the city as people always have. After nine 11 people moved out of the city back in the eighties, my parents moved out of the city. People always do, but the nice thing is that, like I said, we have options and I didn’t think we’d be looking at these options as early as we are.

Ashley :
And do you attribute a lot of that to house hacking on this multifamily deal?

Noreen:
Absolutely. Yep. Taking action. Yeah, taking action out of right away. When we’re looking, it’s like, how did we buy this place? Because how do you buy the next one? It’s a little bit of a mystery still to me. I’m like, when do you actually pick up the phone and say, okay, we’re serious and we’re looking. Now you can look and look and look and look and look and look. So we’ll see.

Ashley :
Congratulations on your success. And it’s really inspiring, I think for a lot of people to see that this can be done, especially in New Jersey market. And

Noreen:
I have to say this, you have to believe that it’s going to happen. You have to decide that this is what it is for you and that it is out there for you. We could have shopped forever and said, oh, well, I guess there’s not a two family house for us, or maybe this is never going to happen for house hacking. But for us, it did happen because we believed it would be. And when we saw this house, I knew in my bones it was ours. And when we put the bid in, I said, I don’t care what that number is, I know it’s going to be ours. And on Monday morning, I texted our realtor. I said, so. And he’s like, yeah, you won. I was like, I knew that. I knew that was going to happen. But you have to believe that it’s so with every ounce of your being,

Ashley :
You have to manifest it. That’s

Noreen:
It. Whatever people call it. Do that.

Ashley :
We’re going to link the information for Noreen and Derek so you guys can reach out to them and find out more information about them. I’m Ashley and thank you for listening to Real Estate Rookie. We’ll see you guys next time.

Derek:
This BiggerPockets podcast is produced by Daniel ti, edited by Exodus Media Copywriting by Calico Content.

Ashley :
I’m Ashley. He’s Tony, and you have been listening to Real Estate Rookie.

Derek:
And if you want to be a guest on a BiggerPockets show, apply at biggerpockets.com/guest.